THE next phase of black economic empowerment (BEE) will be a drive to create a class of black industrialists, backed by President Jacob Zuma and accompanied by tougher legislation and new codes of good practice aimed at fostering real black economic involvement in the economy, rather than empowerment on paper.
This was the key message at a BEE summit in Midrand on Thursday, hosted by the Department of Trade and Industry and addressed by Mr Zuma.
The move to tighten empowerment legislation and add new codes will make it more difficult for many companies to keep their present BEE ratings level as several measures have been reformulated and will demand deeper black involvement.
The government hopes that giving established companies incentives and disincentives — through the codes — to pull new black entrants into their supply chains will foster the growth and capacity of black manufacturers.
Black business lobbyists are more impatient and would like to see government tenders set aside specific allocations for black businesses, which they believe would accelerate this process.
While the department has agreed in principle that "set asides" in tenders can be made for youth and women, it has not yet agreed to do the same for black business in general.
Black Business Council CEO Xolani Qubeka said the heavy weighting of government tenders towards price made the system biased towards big, established companies, which could afford to offer discounts.
"We would like to see set-asides in government procurement. We don’t want to shut out big business but provision should be made for able black companies," he said.
The summit comes after 10 years of empowerment legislation and five years of the codes of good practice, which provide a scorecard by which companies measure their empowerment. The summit is being held to evaluate the successes and failures of the past 10 years and chart the way forward.
Black business lauded Mr Zuma for the role he has played in the review of black empowerment measures as chairman of the BEE Advisory Council and for his championing of the need to create black industrialists, a call that has been taken up with alacrity by both black business lobbies and government departments.
In his address, Mr Zuma said that "a lot of progress has been made over the years to open up opportunities and to grow the economy". In particular, BEE had seen transactions worth R600bn since 1995, he said, and had made great strides in the creation of a black middle class.
It would continue to be "an important policy" of the African National Congress government.
In a departure from his prepared speech, Mr Zuma addressed the concerns of opposition parties and many in the white minority when he said that BEE regulation should not last forever. However, to end the need for it, South Africa needed to level the economic playing field and draw the black majority into all levels of the economy, including as owners and managers.
"We can’t talk about BEE forever. We will become prisoners of our past. We need to get over this (stage) and talk about small business. But we can’t do that unless we succeed. I’m saying this because we come from a racially divided South Africa and we must come to a point where the mention of race is not an issue. The problem is that if we don’t level the playing field we can’t move beyond that point."
Trade and Industry Minister Rob Davies unveiled the new codes, which have been keenly awaited by business since a first draft was issued over a year ago. They will be published in the Government Gazette next Friday.
Broadly similar to the earlier draft, the new codes contain five rather than seven elements and provide for penalties should an enterprise fail to reach the minimum standard in three areas: ownership; enterprise development and procurement; and skills development. Failure to achieve in these areas will lead to an automatic one-notch discount of their ratings level.
The formula to calculate ownership levels has also been tightened to encourage companies to retire the debt of their BEE partners more quickly. Companies must show that black shareholders have an effective net equity value of 40%.
A third element that has been tightened is the definition of an empowered supplier. In order to qualify, a company must add value through local manufacturing as opposed to importing products.
Mr Qubeka said the council had given its unequivocal support to the revisions, but added: "More importantly, though, we are looking forward to the next drive for economic transformation. We are campaigning for black people to enter manufacturing and create companies that are sustainable.
"The next frontier in the war will be changes to the law, and the state has a pivotal role to play both in changing legislation and in its procurement of goods and services."
BEE Advisory Council member Sandile Zungu said in a report to the summit that one of the challenges in advancing economic transformation was "the failure of the state and state-owned enterprises to use their massive buying power to deepen the creation of black industrialists".
"The creation of black industrialists is the next big thing," Mr Zungu said.